Currency remittance

In this article, we aim to provide a comprehensive review of currency transfers:

The biggest challenge in dealing with foreign countries is the issue of transferring money. The lack of direct banking relationships due to international sanctions against Iran has made any financial transactions between residents of Iran and citizens of foreign countries (especially Western countries) particularly challenging.

However, there are many situations where we need to engage in economic interactions with foreign countries. For example, individuals who plan to migrate and need to pay university tuition or property purchase costs in advance, people involved in international trade, those who wish to send or receive money for their loved ones abroad, and so on.

With banking connections cut off, how can one conduct financial transactions with other countries?

The answer lies in currency transfers.

In this article from Hafez Exchange, we will discuss currency transfers and the important considerations related to this crucial issue. Stay with us.

Concept of Currency Transfer

Essentially, if you need to send money abroad or receive funds from this source within the country, you need a currency transfer. Currency transfers are considered the best and most common method for cross-border money transfers.

A currency transfer is essentially a type of contract. Under this contract, the sender of the money in the country of origin signs an agreement with an intermediary company to deliver the equivalent amount of money (in the local currency) to the recipient in the destination country in exchange for a specified fee.

In a way, a currency transfer is similar to a bank check, where you delegate the responsibility of transferring money from one country to another to a financial and credit institution.

Currency transfers are often used for transferring funds to purchase goods or services in foreign countries, paying international installments or debts, and so on. They are bilateral in nature, meaning that for example, it is possible to transfer funds both from Iran to Canada and from Canada to Iran through Hafez Exchange.

If you need to transfer funds abroad for any reason, a currency transfer will be the best option available to you.

Advantages of Using Currency Transfers

Currency transfers, known abroad as drafts, have numerous advantages, including:

1. No Need for Physical Movement of Money: With a currency transfer, there is no need to physically move money. Simply deposit the desired amount as credit from your account into the bank (or exchange house) account, and it will be available for withdrawal in the destination country in the equivalent currency (or any other currency). Therefore, there is no need for handling cash, and the associated risks and dangers are avoided.
2. Facilitates International Financial Transactions: Currency transfers have a straightforward mechanism, making it easy to transfer money to foreign countries. This simplicity accelerates the process of economic transactions on an international level and boosts global market activity.
3. Easy Storage: A currency transfer is a financial contract document that represents ownership of a large sum of money. Therefore, a few currency transfer documents can be worth tens of thousands of dollars. Managing a few small documents is much easier and safer than holding tens of thousands of dollars in cash.
4. Increases Financial Credit: Currency transfers hold significant financial value. As a result, they have inadvertently become a form of unofficial currency that, while being a document of a certain amount of money in a bank account, can significantly increase an individual’s financial credit. This translates to added value and increased money generation.
5. Enhances Security in International Transactions: By using currency transfers to move money, both the sender and the recipient can have confidence in the security of financial transactions. For example, when you sign an international contract using a currency transfer, you can be sure that the money you sent will reach the seller and you will receive a receipt. Thus, the risk of theft during transfer is minimized, and the recipient cannot claim non-receipt of the funds.

Also read: Exchange rates

Steps for Transferring Currency Using Currency Transfers

The general steps for transferring currency using currency transfers are as follows:

1. Choosing a Bank or Financial Services CompanyFirst, you need to select a reputable bank or financial services company (such as an exchange house) to handle the currency transfer. While companies like Western Union, MoneyGram, PayPal, and others also operate in this field, due to international sanctions, the only completely legal and secure option available to you is to use the services of an exchange house.

2. Opening an AccountWith currency transfers through banks being impossible due to banking sanctions against Iran, sometimes you may also need to open an account in specific banks to purchase or transfer currency through an exchange house. Some exchange houses require you to open an account in a particular bank in Iran for depositing or receiving money.

3. Providing Sender and Recipient InformationTo send a currency transfer, complete information about both the sender and the recipient is required. This information typically includes full names, addresses, contact numbers, and in some cases, national identification numbers or passport numbers. Additionally, if you intend to transfer the currency directly to a bank account, you will also need details such as the account number, bank name, and other relevant information.

4. Determining the Amount and Type of Currency TransferIn the next step, you need to specify the amount you intend to send and the type of currency you want to transfer (such as dollars, euros, dirhams, etc.). The exchange rate is determined at this stage, and the associated transfer fees are also calculated here.

5. Paying Transfer FeesThe fees associated with currency conversion and transfer include the charges from the bank or financial services company. These fees may vary depending on the amount and destination of the transfer and are often calculated as a percentage of the total amount being transferred. You must pay the transfer fee to the intermediary company (exchange house) before completing the transfer.

6. Sending the TransferAfter confirming the information and paying the fees, your currency transfer will be sent. You will then receive a reference number, which allows you to track the status of your transfer in real-time.Receiving the Transfer

   The recipient (usually within 1 to 2 business days) can collect the transfer amount by presenting valid identification and the reference number at the exchange house’s representative office in their country.

Important Points Regarding Currency Transfer Steps:

• Many banks and financial service companies offer online tracking of the transfer status.
• The transfer time may vary depending on the chosen method and the destination of the transfer.
• It is crucial to pay attention to transfer fees and exchange rates, as these costs can affect the final amount received. In other words, if fees are not paid separately before sending, the financial company will deduct these fees from the total amount sent, which may result in a discrepancy between the amount sent and the amount received.

How to Perform Currency Transfers at Exchange Houses

Exchange houses are considered the best financial centers for handling currency transfers. With banks facing significant restrictions in this regard, the responsibility has effectively fallen on exchange houses. These are economic units that operate legally in both countries. As private and trusted businesses by both governments, they are not subject to sanctions and can easily use common services for international money transfers.

Exchange houses use various methods and networks for sending currency transfers. Here are some of the most important methods that exchange houses use for currency transfers:

Also read: What is a remittance and how does it differ from money?

1. Using International Bank Accounts

Exchange houses may have various bank accounts in different countries. When you pay an amount to the exchange house, they use these international accounts to deposit the equivalent amount into the recipient’s account. This method is faster and more efficient due to the access to multiple and legal bank accounts.

2. International Money Transfer Networks

Exchange houses can use international money transfer networks such as SWIFT. The SWIFT network allows banks and exchange houses to exchange secure financial messages with each other. These messages include transfer information and payment details. While it is possible for individuals to access SWIFT services, sanctions against Iran have restricted citizens from legally accessing these services.

3. Partnerships with Local and International Banks

Many exchange houses have partnership agreements with local and international banks. These agreements allow them to utilize existing banking infrastructure for conducting currency transfers. Banks also perform the transfer services for exchange houses in exchange for a specified fee. In other words, part of the fee you pay to the exchange house is passed on to the bank.

4. Electronic Payment Systems and Digital Wallets

Some exchange houses use electronic payment systems and digital wallets such as PayPal, Skrill, Western Union, and MoneyGram. These systems allow users to easily and quickly transfer their money in the form of international currency transfers. By using these financial intermediary systems, exchange houses can swiftly send currency transfers to the recipient.

5. Cryptocurrency Payment Networks

In some cases, exchange houses use cryptocurrencies (such as Bitcoin, Ethereum, etc.) for international money transfers. This method is particularly useful in countries with extensive banking restrictions or limited access to banking services. After receiving the cryptocurrency, the exchange house converts it to the local currency and deposits it into the recipient’s account. If you have sufficient knowledge, you can also use this method to transfer money abroad, although finding a reliable and efficient digital exchange house may not be easy.

6. Exchange House Representation

When you use an exchange house for a currency transfer, you are essentially depositing the money into their account in the country of origin, and they will then pay the equivalent amount from their reserves in the destination country to the recipient. This process is similar to how a bank operates. However, the exchange house may also directly handle the transfer as an intermediary (for example, in cases where the transfer amount exceeds the capacity of their reserves in the destination country).

Risks Associated with Currency Transfers

Currency transfers involve international money movement and are subject to various risks due to legal and economic differences between countries. Here are some of the most important risks associated with currency transfers:

1. Exchange Rate Fluctuations

Exchange rates are continuously changing, and these fluctuations can significantly impact the final amount received. If a currency transfer is made during a period of high exchange rate volatility, the amount the recipient receives may be more or less than expected. Note that exchange houses also calculate the exchange rate based on the rate at the time of delivery to the recipient, not the rate at the time of receipt.

2. Legal and Regulatory Risks

The laws and regulations governing international money transfers vary across countries and are subject to change. These changes can cause delays or even halt the transfer process. Additionally, some countries may impose restrictions on sending or receiving currency from certain other countries.

3. Money Security Risks

There is always a risk of cyber-attacks and online fraud. If your confidential information (held by the exchange house) falls into the wrong hands, you may face risks such as identity theft and unauthorized access to your bank accounts.

4. Liquidity Risk

Some exchange houses or financial service providers may face liquidity issues and be unable to process your currency transfers in a timely manner. This can result in delays in the recipient receiving the funds. This risk is higher when attempting to transfer large amounts of currency.

5. Credit Risk

If the exchange house or financial company faces financial difficulties, they may be unable to fulfill their obligations, causing your money to either not reach the recipient or be delayed.

6. Political Risks

Sudden changes in governments, policies, and the economic situation of a country can pose a risk to the process of international currency transfers.

7. Hidden Fees Risk

Some unreliable financial companies and exchange houses may offer seemingly low fees but charge hidden fees and costs that are not initially disclosed. These hidden costs can reduce the final amount received.

8. Time Risk

The time it takes to transfer money abroad can vary and may take longer than expected. These delays can be problematic, especially when urgent money transfers are needed or when there are short-term payment deadlines.

9. Operational Risks

Operational risks include technical problems, human errors, and disruptions in financial systems that can cause delays or mistakes in carrying out currency transfers.

To manage these risks, you can take the following steps:

• Choose a reputable exchange house: Use the services of licensed and reputable companies and exchange houses (like Hafez Exchange).
• Monitor and track your transfer: Continuously monitor the status of your transfer.
• Use insurance: If possible, use currency transfer insurance to mitigate various risks.
• Stay informed about exchange rates: Carefully review exchange rates and transfer money when volatility is low.
• Understand regulations: Familiarize yourself with the rules and regulations regarding currency transfers in both the origin and destination countries.

The Difference Between Currency Transfer and Regular Money Transfer

Currency transfers and regular money transfers are both methods for transferring funds from one person to another, but there are significant differences between the two. Here’s a look at these differences:

1. Conceptual Differences
   • Currency Transfer: This method is used for sending money internationally, between different countries. It is typically utilized when an individual or a company needs to send money to another country.
   • Regular Money Transfer: This usually refers to domestic transfers, carried out within the same country, typically between local bank accounts.
2. Exchange Rate and Currency Conversion
   • Currency Transfer: This involves converting money from one currency to another. The exchange rate may be determined by the bank or exchange house and can vary.
   • Regular Money Transfer: There is no need for currency conversion since the transfer is done in the same currency.
3. Transfer Time
   • Currency Transfer: Sending money through a currency transfer usually takes longer and may take several business days.
   • Regular Money Transfer: This is often faster, typically taking a few hours or even being completed immediately.
4. Fees and Charges
   • Currency Transfer: Generally involves higher costs, including bank fees, currency conversion fees, and intermediary charges.
   • Regular Money Transfer: Has lower costs, usually limited to domestic bank fees.
5. Regulations and Restrictions
   • Currency Transfer: Is subject to international and national regulations of both the sending and receiving countries.
   • Regular Money Transfer: Is governed only by the national regulations of the sending country and usually faces fewer restrictions.
6. Security and Risks
   • Currency Transfer: Due to the international nature and passing through various financial systems, it may face more risks such as exchange rate fluctuations, changing regulations, and more.
   • Regular Money Transfer: Generally has fewer risks.
7. Methods of Transfer
   • Currency Transfer: Can be done through banks, exchange offices, and international financial service companies.
   • Regular Money Transfer: Is often carried out via domestic banking systems, mobile payment apps, and electronic money transfer systems.
8. Tracking and Monitoring
   • Currency Transfer: Due to its complexity, it requires more precise tracking and usually comes with a reference number or tracking code.
   • Regular Money Transfer: Is simpler to track, typically through the bank or banking app.

Also read: The reasons for the rise in the dollar’s value

Frequently Asked Questions

How long does a currency transfer through an exchange office take?

The duration depends on several factors, such as global political and economic conditions. However, a reputable and reliable exchange office typically completes the transfer within 1 to 2 business days.

How much is the commission fee for a currency transfer through an exchange office?

Some exchange offices have fixed rates for different amounts, but most work on a percentage basis. A good and trustworthy exchange office charges between 2% to 5% of the transfer amount, depending on the volume of the transfer.

Who is responsible for paying the transfer commission fee?

The sender of the transfer is responsible for paying the commission fee. If the sender does not settle this amount before sending, it will be deducted from the total transfer amount.

Conclusion

In this article, we have aimed to provide you with comprehensive information about currency transfers. Hafez Exchange is one of the best and most reputable financial institutions that can efficiently and securely handle your currency transfers.

We hope you found this information helpful.